Exam 7: Methods of Carrying on Business

Which of the following is an advantage of incorporation?

Smith,director of ABC Ltd.,intercepted a corporate opportunity for his own benefit and thereby caused the corporation to miss a $45 000 profit.A shareholder urged the board of directors to take action against him.The other directors,all close friends of Smith from school days,did not take any action against him,although they did voice their dissatisfaction with his move.Which of the following provisions would aid the shareholder?

Chuck,Howard,and Ben decide to start a business venture,developing and distributing educational software.For tax reasons,they do not incorporate.Each contributes $10 000,and Howard also contributes a truck and his programming expertise.They agree that all three will be actively involved in the day-to-day management of the business.To determine their rights and obligations,they enter into a one-page agreement that provides only that each of Chuck,Howard,and Ben will receive 33.3% of the profits but also states specifically they are not to be viewed as partners.Based on these facts,which of the following statements is true?

If Carol introduces Mary to a client as a partner in circumstances where it is reasonable for the client to believe that there is a business relationship between them (although there is not),Mary will not be able to deny it later if the client sues her as a partner because a partnership has been formed by estoppel.

If expected dividends are not paid to preferred shareholders,there is no right to sue although those unpaid dividends will accumulate.

What is the significance of a corporation being classed as a separate legal entity?

"In modern business practice,the shareholders of a corporation own that corporation." Explain the accuracy of this statement.

With regard to the liability of partners,which of the following is false?

You have been asked by two fellow graduates to join them in incorporating a closely held corporation that would commence a consulting business.One was in your class,so you know him quite well,but the other is graduating from a different school.You have been discussing the law to review the protection it gives you.Read each of the following statements separately and indicate which is true.

Which of the following statements is correct with respect to limited partnerships?

A franchisee and franchisor are considered to be in a partnership with each other.

Which of the following is true with regard to partnership?

The Partnership Act provides that no major decisions can be made that affect the nature of the business itself without unanimous agreement of the partners.Provide three examples of major decisions.

Which one of the following statements is correct with respect to the law of partnership?

Joe,Sam,and Harry set up an accounting partnership in a small town.To earn money on the side,Harry did some accounting for friends at night,for which he received a fee.When Joe and Sam found out about this,they demanded that the fees received be paid into the partnership business.Explain Harry's legal position.

Chan sold a business to Scott and in the process they valued the "goodwill" at $50 000.In the sale contract,it was agreed that this amount would be paid by Scott,giving Chan 15% of the business profits until it was paid.This creates a partnership between them.

Andrea agreed to form a corporation with two friends,but lay awake last night rethinking her decision.They agreed that they all wanted to be directors and officers and that they all would have signing authority with the bank from whom the corporation is borrowing the money.Nevertheless,Andrea began to review her assumptions.Which of the following is true?

There is one common method of creating corporations used across Canada.

Contrast the obligations and duties of directors and shareholders of a corporation.

Shareholders have a right to bring an action against the directors on behalf of the company when the directors fail in their duty to the corporation.